IDEAS home Printed from https://ideas.repec.org/a/ags/ccsesa/230559.html
   My bibliography  Save this article

Capital Structure and Its Role on Performance of Microfinance Institutions: The Ugandan Case

Author

Listed:
  • Sekabira, Haruna

Abstract

Micro Finance Institutions (MFIs) rejuvenate economic prowess in developing countries, after severe shocks like wars, droughts and floods. MFIs are a promising tool to tackle poverty and improve food security. Sustainability of MFIs based on their capital structure ensures sustainability in poverty reduction and improved food security. The limited literature on the impacts of capital structures on MFI performance necessitated the study. Panel data from 14 MFIs was collected based on availability and accessibility. The sources of data were financial and income statements covering five years. Econometric analysis using STATA software was done following methodologies of Bogan and Rosenberg. MFIs lent to both individuals and groups and 79% were not regulated by the Central Bank, 86% had their funding sources as loans, grants, excluding deposits/savings and 73% attained operational self-sufficiency. Debt and grants were negatively correlated to operational and financial sustainability. When sustainability was more constricted to financial sustainability, debt and share capital remained noteworthy. Other than grants, debt was paid back on competitive market interest rates most especially debts from money lenders, whereas share capital fetched in revenues to the MFIs at market interest rates from the borrowers. Grants and debt had a substantialdamagingconsequence on MFI performance. Capital structure was essential in MFIs’ sustainability. MFI specific characteristics, like management were also important. Subject to sampling uncertainties, the results indicate that adding to regulation by Central Bank, MFIs must specialize their lending to reduce portfolio at risk. MFIs must reduce dependence on debts and grants and resort to accumulating share capital for long-term sustainability.

Suggested Citation

  • Sekabira, Haruna, 2013. "Capital Structure and Its Role on Performance of Microfinance Institutions: The Ugandan Case," Sustainable Agriculture Research, Canadian Center of Science and Education, vol. 2(3).
    • Handle: RePEc:ags:ccsesa:230559
    DOI: 10.22004/ag.econ.230559
    as

    Download full text from publisher

    File URL: https://ageconsearch.umn.edu/record/230559/files/p86_86-100_.pdf
    Download Restriction: no
    File URL: https://libkey.io/10.22004/ag.econ.230559?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    References listed on IDEAS

    as
    1. AnneWelle-Strand & Kristian Kjollesdal & Nick Sitter, 2010. "Assessing Microfinance: The Bosnia and Herzegovina Case," Managing Global Transitions, University of Primorska, Faculty of Management Koper, vol. 8(2), pages 145-166.
    2. Oliver Müller & André Uhde, 2013. "The impact of external governance quality on the economic and social success of microfinance institutions," International Journal of Monetary Economics and Finance, Inderscience Enterprises Ltd, vol. 6(2/3), pages 116-149.
    3. Mersland, Roy & Strøm, Reidar Øystein, 2007. "Performance and corporate governance in microfinance institutions," MPRA Paper 3888, University Library of Munich, Germany.
    4. Sheremenko, Ganna & Escalante, Cesar L. & Florkowski, Wojciech J., 2012. "The Universality of Microfinance Operations Model in Eastern Europe and Central Asia: Financial Sustainability vs. Poverty Outreach," 2012 Annual Meeting, August 12-14, 2012, Seattle, Washington 123286, Agricultural and Applied Economics Association.
    5. repec:bla:acctfi:v::y:2003:i:2:p:123-147 is not listed on IDEAS
    6. Sergio Navajas & Jonathan Conning & Claudio Gonzalez-Vega, 2003. "Lending technologies, competition and consolidation in the market for microfinance in Bolivia," Journal of International Development, John Wiley & Sons, Ltd., vol. 15(6), pages 747-770.
    7. Rezart Hoxhaj, 2010. "Regulation and supervision of microfinance in Albania," Business and Economic Horizons (BEH), Prague Development Center, vol. 2(2), pages 75-81, July.
    8. Schmidt, Oliver, 2012. "Uganda's microfinance policy regime: An exploratio through a political-economy framework," MPRA Paper 42374, University Library of Munich, Germany.
    9. Stiglitz, Joseph E & Weiss, Andrew, 1981. "Credit Rationing in Markets with Imperfect Information," American Economic Review, American Economic Association, vol. 71(3), pages 393-410, June.
    10. Gavin Cassar & Scott Holmes, 2003. "Capital structure and financing of SMEs: Australian evidence," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 43(2), pages 123-147, July.
    11. Hoxhaj, Rezart, 2010. "Regulation and supervision of microfinance in Albania," Business and Economic Horizons (BEH), Prague Development Center (PRADEC), vol. 2(2), pages 1-7, July.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Hadžiahmetović Nejra, 2021. "Factors determining the operational self-sufficiency of microfinance institutions," Croatian Review of Economic, Business and Social Statistics, Sciendo, vol. 7(2), pages 1-13, December.
    2. kemdong nicodeme TENEKEU, 2020. "Les déterminants de la pérennité des institutions de microfinance au Cameroun," Journal of Academic Finance, RED research unit, university of Gabes, Tunisia, vol. 11(1), pages 122-138, June.
    3. Innocent BAYAI & Sylvanus IKHIDE, 2018. "FINANCING STRUCTURE AND FINANCIAL SUSTAINABILITY OF SELECTED SADC MICROFINANCE INSTITUTIONS (MFIs)," Annals of Public and Cooperative Economics, Wiley Blackwell, vol. 89(4), pages 665-696, December.
    4. N. Ngoc B. & Н. Нгок Б., 2016. "Влияние Структуры Капитала И Юридического Статуса На Финансовую Устойчивость Микрофинансовых Институтов В Развивающихся Странах // The Effect Of Capital Structure And Legal Status On Financial Sustain," Review of Business and Economics Studies // Review of Business and Economics Studies, Финансовый Университет // Financial University, vol. 4(2), pages 53-64.
    5. Aruna Balammal & R. Madhumathi & M.P. Ganesh, 2016. "Pentagon Performance Model of Indian MFIs," Paradigm, , vol. 20(1), pages 1-13, June.
    6. kemdong nicodeme TENEKEU, 2020. "déterminants de la pérennité des institutions de microfinance au Cameroun," Journal of Academic Finance, RED research unit, university of Gabes, Tunisia, vol. 11(1), pages 122-138, June.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Tchakoute Tchuigoua, Hubert, 2016. "Buffer capital in microfinance institutions," Journal of Business Research, Elsevier, vol. 69(9), pages 3523-3537.
    2. Andreas Mueller & Luca Sensini, 2023. "Determinants of Financing Decisions of SMEs: Evidence from Hotel Industry," International Journal of Business and Management, Canadian Center of Science and Education, vol. 16(3), pages 117-117, April.
    3. Ana Venâncio & João Jorge, 2022. "The role of accelerator programmes on the capital structure of start-ups," Small Business Economics, Springer, vol. 59(3), pages 1143-1167, October.
    4. Cao-Alvira, José J. & Deidda, Luca G., 2020. "Development of bank microcredit," The North American Journal of Economics and Finance, Elsevier, vol. 51(C).
    5. Paolo Casini, 2008. "Competition and Altruism in Microcredit Markets," Working Papers ECARES 2008_037, ULB -- Universite Libre de Bruxelles.
    6. Yarong Chen & Luca Sensini & Maria Vazquez, 2021. "Determinants of Leverage in Emerging Markets: Empirical Evidence," International Journal of Economics and Financial Issues, Econjournals, vol. 11(2), pages 40-46.
    7. Marek HUDON & Tchakodo OURO‐KOURA, 2008. "Etude Des Facteurs Contingents Du Taux De Remboursement Au Sein D'Une Institution De, Microfinance: Le Cas Du Togo," Annals of Public and Cooperative Economics, Wiley Blackwell, vol. 79(2), pages 301-322, June.
    8. Charles HARVIE & Narjoko Dionisius & Sothea OUM, 2013. "Small and Medium Enterprises' Access to Finance: Evidence from Selected Asian Economies," Working Papers DP-2013-23, Economic Research Institute for ASEAN and East Asia (ERIA).
    9. Conning, Jonathan & Udry, Christopher, 2007. "Rural Financial Markets in Developing Countries," Handbook of Agricultural Economics, in: Robert Evenson & Prabhu Pingali (ed.), Handbook of Agricultural Economics, edition 1, volume 3, chapter 56, pages 2857-2908, Elsevier.
    10. Rashid Khalil* & Dr. Mohd. Sollehudin Bin Shuaib & Dr. Suhaimi Bin Ishak, 2018. "Bank-SMEs Relationship: A Critical Review of Firm & Industry Specific Determinants Influencing Banks’ Performance," The Journal of Social Sciences Research, Academic Research Publishing Group, vol. 4(12), pages 777-791, 12-2018.
    11. Francis Menjo Baye, 2013. "Household Economic Well‐being: Response to Micro‐Credit Access in Cameroon," African Development Review, African Development Bank, vol. 25(4), pages 447-467, December.
    12. Yacine Belghitar & Andrea Moro & Nemanja Radić, 2022. "When the rainy day is the worst hurricane ever: the effects of governmental policies on SMEs during COVID-19," Small Business Economics, Springer, vol. 58(2), pages 943-961, February.
    13. Christian Lambert Nguena et Roger Tsafack Nanfosso, 2014. "Facteurs Microéconomiques du Déficit de Financement des PME au Cameroun," African Development Review, African Development Bank, vol. 26(2), pages 372-383, June.
    14. A. Affuso, 2007. "Credit rationing and real assets: evidence from Italian panel data," Economics Department Working Papers 2007-EP09, Department of Economics, Parma University (Italy).
    15. Iris Kruja, 2014. "Impact of Firm Specific Charachteristics in the Access to External Finances of SMEs," Proceedings of FIKUSZ '14, in: Pál Michelberger (ed.),Proceedings of FIKUSZ '14, pages 135-160, Óbuda University, Keleti Faculty of Business and Management.
    16. Afsheen Abrar & Attiya Y Javaid, 2016. "The Impact of Capital Structure on the Profitability of Microfinance Institutions," South Asian Journal of Management Sciences (SAJMS), Iqra University, Iqra University, vol. 10(1), pages 21-37, Spring.
    17. Miglo, Anton, 2022. "Theories of financing for entrepreneurial firms: a review," MPRA Paper 115835, University Library of Munich, Germany.
    18. de Janvry, Alain & McIntosh, Craig & Sadoulet, Elisabeth, 2010. "The supply- and demand-side impacts of credit market information," Journal of Development Economics, Elsevier, vol. 93(2), pages 173-188, November.
    19. Madajewicz, Malgosia, 2011. "Joint liability versus individual liability in credit contracts," Journal of Economic Behavior & Organization, Elsevier, vol. 77(2), pages 107-123, February.
    20. Mac an Bhaird, Ciarán, 2013. "Demand for debt and equity before and after the financial crisis," Research in International Business and Finance, Elsevier, vol. 28(C), pages 105-117.

    More about this item

    Keywords

    Agricultural Finance;

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:ags:ccsesa:230559. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: AgEcon Search (email available below). General contact details of provider: http://www.ccsenet.org/sar .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.